Dairy farmers urged to trim the fat

Dairy farmers should trim the fat and pay close attention to farm costs this season after Fonterra cut its forecasted milk price yesterday, DairyNZ says.

The industry body is urging farmers to run the ruler over their spending after the expected payout was lowered by $1 a kilogram of milksolids to $6/kg for the 2014-15 season.

Farmers were told the lower milk price meant volatility was part of everyday life and they would have to be conservative when making farm decisions this season.

DairyNZ economists estimate the reduced payout could cut national income by $1.8 billion, with farmers forced to accept an average farm loss of about $150,000.

DairyNZ chief executive Tim Mackle said a $6/kg milk price was for many farmers a break-even payout, meaning little capital expenditure or principal payments would occur this season.

''While it is unclear where prices could be at the end of the season, volatility requires farmers to be prepared to react to changes quickly," Mackle said.

"Now is obviously a good time to look at updating or developing a cashflow budget based on a $6 per kgMS milk price.

''Look at where the fat can be trimmed and where efficiency gains can be made, for instance growing and utilising more homegrown feed and looking at where supplementary feed can be reduced.”

Farmers should also look at their contingency plans for a possible dry summer – perhaps culling non-performing cows earlier and going to once-a-day milking faster, rather than resorting to extra supplementary feeding.

With large tax bills looming from last year's record season, farmers should also contact their accountant to recalculate their tax.